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Investment Trust Insider: are frontier markets more than fun punt?
by James Carthew on May 07, 2013 at 00:01
This week I thought I would have a look at BlackRock Frontiers (BRFI). The fund was launched at £1 a share in December 2010. Today it is the highest rated (on a 5.4% premium) and the best performing (both in net asset value and price terms) global emerging market closed-end fund.
The NAV though is just 99p; testament to the rocky ride that emerging markets have had over the past couple of years and, perhaps, indicative of another case of launching a fund close to the top of the market.
So what went wrong? Well, shortly after BRFI launched, the Arab Spring generated turmoil across North Africa and the Middle East. BRFI had large weightings in places such as Saudi Arabia which, while only tangentially affected by the uprisings, were viewed by some investors as the next dominoes to fall.
Then worries about the pace of growth in China unsettled investors and caused sharp falls in commodity prices. The eurozone’s woes put pressure on Eastern European markets and, in a few countries such as Vietnam, governments had to take drastic action to rein in soaring inflation.
Initially, BRFI underperformed its benchmark and by the end of December 2011 it was trading at a 7% discount. In 2012 things began to improve but the real recovery happened over the first couple of months in 2013, possibly encouraged by the vast amounts of liquidity central bankers have been injecting into the system.
One big unknown is whether this recovery could be sustained in the face of a renewed Chinese slowdown.
A busy schedule
BRFI is managed by Sam Vecht who also manages Eastern European Investment trust (which has been in the news recently as Vecht intends to restructure its portfolio), and is head of BlackRock’s emerging Europe equity team. He also manages, or co-manages, another four open-ended funds.
When BRFI launched, I was concerned that Vecht would not have enough time to manage what is quite a complex fund. BRFI’s universe contains around 140 countries (everywhere that is not contained within the MSCI World developed and emerging market indices).
His investment approach places emphasis on country and company visits but he can draw on BlackRock’s extensive network of offices (100 investment teams in 30 countries) and so does not have to do all the legwork himself.
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